Comments on: Modern Monetary Theory, Bears 2.0 Stylehttp://www.nakedcapitalism.com/2013/01/modern-monetary-theory-bears-2-0-style.html
Fearless commentary on finance, economics, politics and powerFri, 09 Dec 2016 17:25:57 +0000hourly1https://wordpress.org/?v=4.4.5By: FDO15http://www.nakedcapitalism.com/2013/01/modern-monetary-theory-bears-2-0-style.html#comment-1063805
Sun, 03 Feb 2013 10:05:24 +0000http://www.nakedcapitalism.com/?p=38115#comment-1063805Roche and JKH have discussed, ad nauseam, the main failing of MMT which is reserve accounting. The MMT description of taxes destroying money and deficit spending creating money is 100% wrong and anyone who understands banking knows it is wrong. If you think MMT is mathematically correct then you don’t understand the MR position and why they correctly understanding MMT’s main failings. I work in a bank running a fairly large unit and JKH has substantially more banking experience than any MMTer. I can tell you from experience reading the MR comments and from personal experience that their description is far more accurate than anything published by the MMT academics and Mosler who is really just a bond trader. If you truly believe MMT is mathematically or “perfectly correct” then you have failed to understand all of what’s being discussed.
]]>By: EconCCXhttp://www.nakedcapitalism.com/2013/01/modern-monetary-theory-bears-2-0-style.html#comment-1063554
Sun, 03 Feb 2013 05:48:57 +0000http://www.nakedcapitalism.com/?p=38115#comment-1063554Cal, we have a fractional reserve banking system. Two different forms of money which don’t mix, but which trade roughly at par. Reserves, which are immutable, and bank debt, which is created and destroyed in the lending process.

Money creation through the coin creates new reserve dollars. The moment this new money is spent into the economy, the reserve becomes the property of the payee’s financial institution, while the payee gets the bank’s IOU, a demand deposit, commercial bank money.

Since the repeal of Glass-Steagall, banks are able to use those reserves to obtain ownership of real-world infrastructure assets, cordoning off the commons, creating Michael Hudson’s dreaded tollbooth society. They do so with the knowledge that the reserves against which they write checks will be cycled back, by their recipients, into roughly the same banks, as banking is highly concentrated, and the big banks maintain demand account with each other, further leveraging their reserves.

Meanwhile, those demand deposits, those bank IOUs, vanish with each bank fee, or with each check written to a bank. Some immutable reserves may change hands, but the bank IOUs are extinguished. The deposit money that constitutes 90+ % of our medium of exchange rapidly vanishes. But the debts don’t go away with the money. They compound and accrue. Foreclosure, penury and privitization of public assets are the outcome.

MMT is the belief that we can alter this imbalance not by altering the reserve ratio but by delivering more reserves to the financial system, provided those reserves are spent one time by government to augment, one time, the demand deposit accounts of government payees. Whereupon those reserves then belong forever to our tollbooth financial institutions. MMT’s plutonomic, destructive legacy is all around us. Own it, Cal.

]]>By: Calgacushttp://www.nakedcapitalism.com/2013/01/modern-monetary-theory-bears-2-0-style.html#comment-1063470
Sun, 03 Feb 2013 04:09:05 +0000http://www.nakedcapitalism.com/?p=38115#comment-106347011.Pretend that banks around the globe stop buying US treasury bonds because either they don’t believe the government can back the debt or because inflation means the real yields are negative, thus making such a purchase not profitable. Will never happen. The real yield is besides the point. Doesn’t matter. What matters is the nominal yield. If this is positive, the banks will always choose mo’ money over less money = they’ll buy bonds, which by definition are profitable, compared to holding currency.

12.The Federal Reserve steps in at this point to buy treasury bonds to keep interest rates from soaring. Can it do this indefinitely to keep paying off the debt? Again, this scenario is close to impossible. The only way the banking system as a whole can get rid of money is by it being taxed away ( or saved, or saved by foreigners, both in the form of bonds). If the Fed wants to keep interest rates at some level, it can. No big deal. But the inevitability of future taxation effectively puts an upper bound on the interest rate, even if the government foolishly lets it float.

13.But when does money-printing become dangerous?When it is inflationary. This is very rare. Can it continue indefinitely? Yes, for thousands of years, and/or until the point of inflation.

14.If not, where is the limit? And why not just do this periodically–go in a debt binge in all sectors of the economy and then print a bunch of money to erase this debt, rinse, and repeat? Printing money DOES NOT erase the debt. It just exchanges one debt instrument – bonds , for another – currency. And currency & bonds are “one and the same thing” (FDR). Why ever issue “bonds” rather than “currency” at all. The evidence is that “printing money” (currency) is if anything LESS inflationary than issuing / “printing bonds” (“debt”).

15.How is any of this (running up a huge deficit, printing money) not a free lunch? It is a free lunch. MMT, Keynesian economics, rational behavior is a free lunch. Not-doing-insane-things is a free lunch compared to doing-insane-things. “There ain’t no such thing as a free lunch” is self-contradictory “wisdom”. The people who say this are telling you that you will get a free lunch by not wasting your time believing in free lunches. But all MMT says is – get a free lunch by not destroying the lunch you already have. Modern mainstream neoclassical “economics” is all about destroying real lunches, real lives.

16.My instinct tells me that consumption and the money supply can be tweaked one way or another to stabilize the economy (and of course such a decision benefits some groups and harms others) but that it can’t magically solve an economy’s (structural) problems and that neither can continue indefinitely. Your instincts are wrong, because you have believed the Big Lie that the economy is run by sane people, rather than morons, monsters and maniacs.

17.Since the US went on a consumption binge leading up to the crisis, Really? Funny, I see a lot of homeless people. Weren’t any in the USA to speak of before 1979-1980. And a lot of other people having trouble getting enough to consume for a civilized existence even before the crisis. Lets get back to – and do better than – the good old consumption binge postwar full(er) employment Keynesian economy, that did more with less than a richer, less just economy does now. By using economics that makes logical sense, not the embarrassing, innumerate trash taught by tenured morons at Harvard & Chicago nowadays.

18.it seems that more consumption wouldn’t be the answer. And that since the money supply has steadily increased over the past few decades (especially in the past decade or so) increasing the money supply even more wouldn’t be the answer.More, and more just, and more efficient consumption are the only sensible aims of economics. Who gives a damn about the money supply? Money supply figures were unknown until around 1960 – which is around when economics went to hell. MMT is about doing the very easy task of ensuring non-inflationary 0% unemployment. As Keynes said: “Take care of the employment and the budget will take care of itself.”

]]>By: Calgacushttp://www.nakedcapitalism.com/2013/01/modern-monetary-theory-bears-2-0-style.html#comment-1063464
Sun, 03 Feb 2013 04:03:47 +0000http://www.nakedcapitalism.com/?p=38115#comment-1063464John:1.These are the basic questions of MMT theory that it seems MMTers avoid. They spend their articles talking about why a government isn’t a household but then don’t explain the limits to any of the policies they prescribe. Actually, I don’t like the way the academic MMTers say the gubmint isn’t a household. It is misleading. The government is a household. A sovereign household. Not just a big household, but a humongous one, and that is what makes the gubmint’s debt into money.

2.I agree that because the US prints the global reserve currency it has a lot more leeway in running up deficits than other countries (because of course these debts are dollar denominated). It has more leeway. On the other hand, this reserve currency status = foreign savings is deflationary and creates more problems – takes US jobs away – requires bigger budget deficits to accomodate.

3.But how much is too much? The national debt is around 100% of GDP. Can we run it up to 200%? 400%? 1000%? It is not really 100% – intragovernmental debt, like that of the Treasury to the Fed or the SS system, is silly – it is one of your pockets owing another pocket. Yeah, those numbers are no big deal, though they aren’t likely.

4.MMT says that running a budget surplus is always bad because it takes money out of the economy. No, just usually bad, only good when inflation threatens.

5.So does this debt ever get paid off? It is constantly being paid off. Everytime the government accepts dollars=government debt from the public, to pay taxes or to sell something to the public, the debt is being paid off.

6.Can we simply run a large public deficit every time the economy gets bad and then never run a surplus (to pay off the debt)? Yup. The surplus is not “paying off the debt”. All taxation is “paying off” the debt. The US government has such a good record of paying its debts that people love to have the Uncle Sam owe them.

7.Wouldn’t the economy simply stall every time we reduced the deficit, meaning we’d have to run up the debt indefinitely? Might, might not.

8.At what point will banks stop buying US treasury bonds? Never. They will always put it in Treasury bonds or interest bearing instruments, rather than save up dollar bills = reserves. (I’m skipping interest-on-reserves for simplicity)

9.Now I know you’ll say the central bank can simply buy them and that brings me to my next question. The central bank is not so important.

10.Also, how does this differ for the UK and Japan? I know the yen is very important in the carry trade and that makes Japan a special case. But can both these governments run up debts indefinitely? No difference at all. All these governments can issue as much debt or currency as they like.

]]>By: Calgacushttp://www.nakedcapitalism.com/2013/01/modern-monetary-theory-bears-2-0-style.html#comment-1063379
Sun, 03 Feb 2013 02:12:07 +0000http://www.nakedcapitalism.com/?p=38115#comment-1063379Gets it wrong, repeatedly, is better. I have my own criticisms of MMT academics’ presentations and organization, their exposition, their terminology, their definitions and slogans. But they are in the opposite direction to ones like “MR” ‘s – or more seriously, Lavoie or Fiebiger, and practically everybody else’s. :-)

MMT-as-presented doesn’t go far enough and can make things out to be more complicated than they really are (a late 20th century epidemic disease). Its expositions simplify things compared to the rococo epicycles of the rest of economics, but there is still much room & time to write shorter letters. But MMT-the-theory is perfectly correct, and deserves the highest term of mathematicians’ praise – it is entirely trivial.

To belittle “When IOUs complete their journey back to their issuers, they are destroyed.” or to think that MMT somehow means “all money being “state money”.” is to understand very, very little about money. Basically the critique of this critical critique is: Been there, done that. MMT is an old theory – the New Economics of the 30s & 40s. MR here makes many of the same errors that were made in the degeneration of economics since then and also by some of MMT’s non-academic boosters. Today’s MMT academics do not, or don’t really, even if they look like they are. The main failing is expository and terminology that insufficiently guards against these errors. Basically, bludgeon Mitchell-Innes above all – because he makes it as simple as it really is – (& Lerner & Commons) into your brain. Read Geoffreys Ingham & Gardiner (e.g. in the Mitchell-Innes conference volume or their books) and you’ll get it right.

]]>By: different cluehttp://www.nakedcapitalism.com/2013/01/modern-monetary-theory-bears-2-0-style.html#comment-1062306
Sat, 02 Feb 2013 09:08:02 +0000http://www.nakedcapitalism.com/?p=38115#comment-1062306Whatever money “is” or “may be” in the widest scope, and whatever its value therefor “is”, I can say that my own money is most valuable to me as a medium of exchange. And what makes it most valuable to me as a medium of exchange is that I don’t have to go exchange it for “something” the day or even week I get paid. I can store the money one place or another for weeks or even months and then exchange just some of it for certain “things” or “work” that I want but cannot make or do myself. So for me my money is a store of mediumed exchangeability.
My money isn’t valuable to me as a way to buy revenue-stream extraction devices to extract revenue-streams of more-money from society. I don’t have enough money for that. So the only value my money has for me is in the exchanges of things or work it can mediate for me.
]]>By: EconCCXhttp://www.nakedcapitalism.com/2013/01/modern-monetary-theory-bears-2-0-style.html#comment-1061766
Sat, 02 Feb 2013 03:14:43 +0000http://www.nakedcapitalism.com/?p=38115#comment-1061766Cullen Roche and the MR guys have already explained why MMT is wrong and does not accurately describe our current system. @FDO15

]]>By: FDO15http://www.nakedcapitalism.com/2013/01/modern-monetary-theory-bears-2-0-style.html#comment-1061618
Sat, 02 Feb 2013 01:27:03 +0000http://www.nakedcapitalism.com/?p=38115#comment-1061618Cullen Roche and the MR guys have already explained why MMT is wrong and does not accurately describe our current system. In order for MMT to be 100% accurate you need to shut down the banksters. The current system is no designed around “state issued” money, but bank issued money.

]]>By: allishttp://www.nakedcapitalism.com/2013/01/modern-monetary-theory-bears-2-0-style.html#comment-1061385
Fri, 01 Feb 2013 22:28:00 +0000http://www.nakedcapitalism.com/?p=38115#comment-1061385Katie writes: “Honey, we’re broke, I think I’ll go down to the guaranteed jobs office and dig up new dollars.”
Wonderful insight.
I’m wonderng if the essence of MMT may be that we need to go forward to a new/old social organization, that of the commons. When property, needed to actualize the potential value of one’s labor, is free and available, as is implied in a guaranteed jobs office, then in effect property (to enable some to make economic rent) has been transformed to a commons, (to enable all to produce)
Would this be a true market economy, wherein everyone has both their own labor power and the necessary “property” (or commons) enabling them to create wares that can be exchanged for money that can be exchanged for other wares and services in the market?
In this case, might not a guaranteed job program make real the myth of money as a mere veil for barter? Strange…
]]>By: RVMarkovhttp://www.nakedcapitalism.com/2013/01/modern-monetary-theory-bears-2-0-style.html#comment-1061292
Fri, 01 Feb 2013 21:12:08 +0000http://www.nakedcapitalism.com/?p=38115#comment-1061292Good job, thank you!
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